Estimating Startup Costs

Starting a new business is an exciting process, but there are many steps along the way before you can officially open your doors. Successfully obtaining the finances you need to cover your startup expenses is a huge step toward making your dream a reality. In order to give your business a strong foundation, you need to estimate your startup costs as accurately as possible.

Working through the proper calculations and arriving at an accurate estimate of startup costs is extremely important for the success of all entrepreneurs. Being thorough will help you impress your financial institution so you can receive a great loan. An accurate number will also help ensure that you don’t run out of money before your business is off the ground.

Starting a new business is an exciting process, but there are many steps along the way before you can officially open your doors. “One of the main reasons most small businesses fail is that they simply run out of cash,” stated Cynthia McCahon, CEO of the business-plan software company Enloop, to Business News Daily. “Writing a business plan without basing your forecasts on reality often leads to an unfortunate, and often unnecessary, business failure. Without the benefit of experience or actual historical financials, it’s easy to overestimate a new company’s revenue and underestimate costs.”

Furthermore, it could even prevent you from taking out too large of a loan. More money isn’t always better when starting a business. If you take out a loan for more money than you actually need, you may be encouraged to splurge on things you don’t really need, such as extra inventory or too many employees. If you overspend in the beginning, you may struggle to pay back your loan and hinder your business’s ability to thrive.

“The best approach is to test your idea in a small, inexpensive way that gives you a good indication of whether customers actually need your product and how much they’re willing to pay for it…,” reports Business News Daily. “If the test seems successful, then you can start planning your business based on what you learned.”

In order to help your startup fund go as far as possible, make a strong effort to identify and grow your customer base before you begin. This means reaching out to potential customers and making sure they know about your services or products, where your new business will be located and when it will open. It also means including the cost of advertising and marketing before your business opens as a necessary startup cost.

You also might want to include the cost of free samples or service demonstrations in your startup costs because these things can go a long way toward building your customer base. Demonstrating that you have done these things can help your financial institution feel more secure in offering you a loan.

Aside from the money needed to establish your customer base, there are other startup costs that you will incur before your business opens. This includes consultants, legal fees, insurance, deposits on rent, office supplies and equipment and inventory, among many other expenses.

Many experts recommend that you secure sufficient funds to cover six months of fixed expenses before you open your doors. This includes things like payroll, rent and paying vendors. Six months is a conservative estimate because many small businesses don’t make a profit for more time than this. So, any effort to minimize expenses will be important for helping your business succeed.

Stop in today to see how our experts can help determine the hard numbers for your business.


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